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NEW DELHI: The domestic currency on Friday dropped 17 paise to 71.26 against US dollar after Finance Minister Piyush Goyal announced a slew of populist measures to woo farmers and the middle class, the potential voters ahead of May general elections.

“The government presented an expansionary Budget and prioritised populism over fiscal prudence. The deviation from the FY19 fiscal deficit target and the “pause” on FY20 fiscal consolidation is a negative surprise, relative to our expectations,” said Nomura India.

The FM raised the FY19 fiscal deficit target to 3.4 per cent of GDP against the earlier target of 3.3 per cent. Goyal said the government was looking to tame fiscal deficit at 3.4 per cent for FY20.

“We expect the Reserve Bank of India (RBI) to view the budget as inflationary and flag this as an upside risk to inflation. The expansionary fiscal impulse, at the margin, negates the need for the Reserve Bank of India (RBI) to consider monetary easing at this stage,” Nomura India said.

The deficit target for FY20 assumes 15 per cent hike in direct taxes and 13 per cent rise in the indirect taxes.

"These numbers look a bit ambitious given the current trajectory of economic growth. Thus, there is some scepticism in the bond markets that borrowings next year may be higher. Yields have moved up due to higher deficit and higher borrowings projected for FY19 and FY20," said Mihir Vora - Director & Chief Investment Officer, Max Life Insurance.